Is it Worth Using a Home Equity Loan (HELOC) to Buy Digital Coins?

Cryptocurrencies like Bitcoin, Litecoin, Ethereum, and more have rapidly grown in popularity globally. With more and more investors taking an interest in cryptocurrencies, the demand, worth, and value have been fairly increased. According to recent statistics, around 16% of United States residents alone have invested in various cryptocurrencies.

[Read More: Lending Money – Finance Topics Information]

What’s more amazing about this ever-evolving digital trend? People who want to invest in cryptocurrencies but don’t have cash can borrow again their home’s equity. However, the cryptocurrency world is volatile where prices vary on a daily basis. Analyzing the latest crypto market trends can be another great way to make a sound ultimate decision (a pro tip).

Read on to learn how a home equity loan works and what factors should be in your mind when investing in crypto.

How Do Home Equity Loans work?

Known as an equity loan – a home equity loan HELOC is a type of consumer debt enabling homeowners to borrow against the equity in their homes. Home equity loans generally tend to be at fixed rates. However, rates might vary for the home equity lines of credit (HELOCs).

Users ultimately have to pay back the loan with a fixed interest rate over a set period of time. The duration of the period depends on both of the associates as per their mutual interests. Nevertheless, the borrower should consider the fact that the loan is secured by their home and that can be risky. If they can’t keep up with the payments, they might have to lose their home eventually as the lender could foreclose it.

In addition, to be eligible for a home equity loan, you will need to have a good credit score, at least 15 to 20 percent equity in your home, and proof of enough income to pay back the loan. Borrowers can borrow a maximum of 80% of their equity from a lender.

Investing in Digital Coins with a Home Equity Loan

When you opt for a home equity loan HELOC, you have complete authority to use it anywhere. There are no restrictions from the lender regarding its usage. You have all the rights to invest home equity loan anywhere you want including cryptocurrencies of your choice.

There are thousands of cryptocurrencies you can choose from including Tether, Solana, Bitcoin, Ethereum, Litecoin, and more. These are considered the leading, most secure, and stable cryptocurrencies; new and emerging ones seem to be in limelight soon.

However, before investing in cryptocurrencies with a home equity loan, your particular investment needs to increase in value by more than the interest rate you will have to pay on the loan you get from your lender. Another thing to keep in mind is that as per the latest rules, crypto gains are taxed similar to the gains at capital investments.

Special Consideration

When Investing in Digital Coins On a Home Equity Loan:

Investing in digital coins for home equity loans HELOC or borrowing to buy investment means your certain investment is supposed to work well so you can make a profit on it. Why? Because investors will not only have to pay back the loan but will cover the interest rate as well.

The possible situations you may find yourself getting caught in include:

If you take a home equity loan and invest in the cryptocurrencies and they face a downfall (decreasing in worth, value, and price), you will end up losing your money ultimately. In such a case, you will not only lose your home that will be foreclosed (as you couldn’t return your loan along with the interest rate) but you will lose a huge amount that you have invested in cryptocurrency due to its price downfall.

However, on the other hand, if the price of your cryptocurrencies increases with time and you will be able to make enough money, you cannot only return your loan along with the interest rate but you will manage to get back your home as well.

[Read More: Lending Money – Trending Credit Cards Topics]

Although, cryptocurrencies like Bitcoin and Ethereum have delivered spectacular returns over time, however, it still is risky investments. Remember cryptocurrencies are highly prone to huge ups and downs. For instance, as of Mid-June 2022, Bitcoin crashed about 50% year to date. It reflects that the cryptocurrency market is highly volatile which is because of huge price swings on a daily basis.

Wrapping It Up

Cryptocurrencies have already proved to deliver huge gains for investors in a couple of past years. With the increasing popularity of digital coins, people have started putting their homes at risk to buy coins. You can use a home equity loan to invest in stablecoins, however, it comes with greater risks. While the profits can be significant, the losses might leave you out on the street.

Make sure to do your own research before putting your home at risk. Also, timing matters the most when it comes to cryptocurrencies. Investing in digital coins at the right timing could bring you higher returns. As of June 2022, Bitcoin is surging higher than ever before with a price of around $29,700 for a single coin.